Moody’s warns on UK’s AAA status

Ratings agency Moody’s has warned the UK’s prized AAA rating is at risk from the eurozone crisis despite the austerity measures taken to help retain its current status.

In a note released last night, Moody’s said the UK’s “strengths” are not enough to completely shield it from the crisis in Europe.

“The UK sovereign faces rising challenges, which means there is a reduced ability to absorb further macroeconomic or fiscal shocks,” Sarah Carlson, an analyst at Moody’s in London told the FT.

She said the outlook on the rating “is going to be sensitive to future developments in the euro area”, adding while the UK “is not a member of the monetary union, it is certainly not immune to this crisis.”

While the outlook on the UK’s AAA rating – Moody’s highest level – is stable, Moody’s said there was now more of a risk to the UK.

The outlook on the AAA rating “is stable, but certainly the amount of headroom that existed before has reduced,” Carlson said.

Elsewhere, Carlson said it was positive for the UK that the government was committed to fiscal austerity.

“The Autumn statement gave a pretty good indication that the government remains committed to the fiscal consolidation program,” she said. “This commitment is an important contributor to the AAA rating and that certainly supports the stable outlook.”